Canopy Rivers Inc (CVE:RIV) (OTCMKTS: CNPOF) came out with 2Q 2019 financial highlights after the bell on Monday, and the headline number may surprise some. The cannabis investment and operating platform posted a large net income figure that would make any Canadian LP envious—although the devil is in the details.
For the three months ended September 30, 2018 posted net income of $10,949,000—for a diluted EPS of $0.07. The was in contrast to a $2,119,000 loss for the comparable period in 2017 (0.02). While the headline number looks great, the gain was primarily driven by net changes in the fair value of financial assets at fair value through profit or loss (FVTPL), offset by share-based compensation expenses relating to the accounting treatment of seed capital options and consultants’ options. FVTPL describes an accounting treatment for changes in the fair value of derivative investments, to which Canopy Rivers owns many.
Although Canopy Rivers’ gain was largely IFRS maneuvering in action, there was strong organic operating cash flow growth underlying it all. Interest and other income totaled $563,000 and $123,000 for the three months ended September 30, 2018 and 2017, respectively. That represent a YoY increase of 457.72%. This was primarily comprised of royalty/interest income generated from the Company’s investments in Agripharm, James E. Wagner Cultivation, Radicle, and interest and management fee income generated from the lease agreement with Spot.
And there’s more such growth coming down the pike.
On November 19th, when portfolio holding Radicle Medical Marijuana Inc. received its production and sales licence from Health Canada, Canopy Rivers’ repayable debenture was automatically set-off against consideration otherwise payable entitling Canopy Rivers to a royalty interest with a minimum annual payment of $900,000 per year for a term of 20 years. This, on top of the conversion of Canopy Rivers’ convertible debenture into approximately 24% of the fully diluted issued and outstanding common shares of Radicle.
No doubt Canopy Rivers income statement is not a straight-forward affair. The company has made eleven investments spanning various financial structures to date. With a balance sheet carrying $105,845,000 in cash and a willingness to spend, more investments are on the way. Ultimately, the big takeaway from today’s report is not the headline number, but the fact Rivers continues to advance its best-in-class incubator position in the sector. Eventually, that should translate into home run holdings, boosting shareholder value along the way.
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